Nashua Mobile sale stems from MTR cut – Altron cash-cow Autopage next?

While consumers celebrated the decision by the Communications Regulator to slash Mobile Termination Rates, an entire industry sub-sector shuddered. The deliberate squeeze on profit margins has made business impossible for the once flourishing intermediaries. This week's sale by the Reunert Group's sale of its Nashua Mobile operation to cell phone majors MTN and Vodacom is an elegant (if discounted) way out of the dilemma for the JSE-listed group. ICT analyst Spiwe Chireka unpacks the implications for other middle men in this CNBC Africa interview – and wonders how Altron will deal with its former cash cow but suddenly stressed subsidiary Autopage. – AH

ALEC HOGG:  Vodacom and MTN announced this week that they are set to spend R2.2bn in a buyout deal of subscribers, which was signed with Nashua Mobile, a subsidiary of Reunert, worth about 20 percent of Reunert's market cap.  Nashua Mobile – on its side – said its business model was not sustainable and would now find suitable packages for subscribers with the two networks.  Joining us now to explain all of this, is Spiwe Chireka, ICT analyst at IDC.  It is unusual Spiwe, because you had Reunert through Nashua Mobile on the one hand and Altron through Autopage on the other hand, building fairly big businesses in a space that now does not seem sustainable anymore.  Just unpack it for us.

SPIWE CHIREKA:  Yes, while two to five years ago, their model was a very good one, where they go in they are offering service or bundling the best from the different operators and selling to the customers as the middle man.  However, if we look at the last five years, we've seen a very aggressive push by the Telecom providers themselves, targeting the customers directly.  They're coming out with better packages.  They're coming up with more value added services, such that it's almost reduced your Nashua Mobiles to what I'd call 'me too' operators, where it's like 'I'm there too, but there's not really anything significantly different from what I'm offering compared to the large operators.  It is a case of your cooperation becoming your competition.

ALEC HOGG:  Integrated…

SPIWE CHIREKA:  Exactly.

ALEC HOGG:  Have the MTR's had anything to do with it, the fact that prices are falling?  Usually, when prices fall, the middleman is squeezed.

SPIWE CHIREKA:  Yes, definitely.  What you therefore find is that as the termination rates are cut, the margin per call for Vodacom, MTN, and Cell C is becoming less and less.  That also has implications on the discount they can give to the likes of Nashua Mobile.  You'll find that the difference in pricing, between what Nashua Mobile can actually add as a margin, to what they're getting from Vodacom, and what Vodacom is charging the market, is not that different.  Because of that, you'll find that the margins for the likes of Nashua Mobile becomes smaller and smaller as a result.

ALEC HOGG:  Fascinating.  Does it have any implication for someone like Blue Label Telecoms?

SPIWE CHIREKA:  Not quite, because Blue Label focuses on your SIM cards and your airtime vouchers etcetera, so they're still in the market because they still work with the big Telco's as well.  If we look at what's happening to the Nashua subscriber base, it's really just going to a different player, so they're still very relevant in the market.

ALEC HOGG:  If you were sitting in Altron's boardroom, you would be thinking carefully I guess, about Autopage.

SPIWE CHIREKA:  I would say it would be cause for concern because our view is that it's likely that Altron is going through the same thing Nashua went through in the events leading up to this decision.  However, with Altron, it's not to the extent where it is for Nashua Mobile, but we do believe that it is a possible catastrophe on the market in the short term.

ALEC HOGG:  What was Nashua Mobile worth – say – five years ago or even three years ago, before MTR started coming down and the middleman was then squeezed?

SPIWE CHIREKA:  I wouldn't have an idea how much they were worth, but definitely, their relevance was very high within the market.  We didn't see the service providers with a sound model for enterprise.  It was really a case of 'we sell these packages' and the enterprise has to find where exactly they fit in.  Now, we're seeing a stronger focus on the enterprise packages coming out – directly targeting the enterprise segment, which made up the bulk of Nashua Mobile's customer base.  It was bound to happen that with the partners now targeting the same customers, they're bound to lose some.

ALEC HOGG:  And I guess the smaller businesses that are in that field as well, because there's a lot of them in the middleman field between the customer – you and I – and the MTN, Vodacom, or even Cell C…their businesses would be under strain.

SPIWE CHIREKA:  Yes.  Any middleman at the moment, unless you have something different…  As I said, you're not 'a me too' type of provider, maybe you do stand a chance, but I think that for the bulk of them, the model is at risk.